With Immediate effect from 15 November, major banks including HSBC, DBS & UOB have increased their borrowing stress-test to 4.5%. The new interest floor rate will be used to compute TDSR (total-debt-servicing-ratio).

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Who is affected?

Private Property Buyers will experience a 3% to 6% decrease in loan amount for the same income. Price Affordability reduces with lesser borrowing power. Looking from another angle, this also means an increase of 3% to 6% income requirement for the same loan amount.

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A 35 year old buyer with a monthly income of $16,000 could borrow up to $1.96 million before the cooling measure, $1.84 million after the cooling measure, and only $1.74 million with the latest round of adjustment by the banks (total of 11.37% reduction of loan amount).

 

What happened before?

This move came earlier than expected as the latest round of adjustment by the government was on 30 September 2022. In the previous round of cooling measure, the interest floor-rate increased from 3.5% to 4% as a move to curb borrowing.

 

The property market saw a slight dip in transaction volume, but it was mainly due to the 15-month wait period for Private Property Sellers buying HDBs.

 

What to expect in the future?

While this is not a Property Cooling Measure, this round of adjustment was expected with interest rates rising globally. major banks are making effort by taking extra precaution to lending.

 

This increase is only temporary because any more increase would be unsustainable and we should see a reversal in the following 6 to 9 months. The growth of inflation in the US started to plateau and is expected to fall to 2.9% from the current 5.1%.

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Will Prices fall?

Yes and no. Reduced borrowing power definitely reduces purchasing prices in theory. However there are few important factors to consider in our market as well.

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1. Rental prices are still going up

Investors are still getting good rental on their property and the increased stress-test does not mean increased interest rates, especially for those who previously refinanced for a fixed rate.

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2. Only New Borrowers are affected

Borrowers who already locked in with their mortgage previously, the 3M Comp Sora is still 2.648% at the moment. HLE loans are still at 2.6% fixed. This increase in stress-test only affects new borrowers.

 

3. Sellers will not decrease prices because buyers are priced out

With reduced borrowing power, Buyers that are priced out will just put a halt to their purchase. Serious buyers could also consider downsizing their purchase instead of stretching their prices.

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Sellers will not decrease prices just because buyers are being priced out. They can simply stay put.

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4. Developers are the biggest losers

Developers that have already bought land and committed to materials & building, could be stuck with inventory for the upcoming year. This means that upcoming launches could be priced more sensitively so that they can clear their stocks.

 

However, the market supply is already at a 6 year low. Developers were used to keeping 2 times more inventory than what they are holding today.

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Speak to a Professional and discuss what is expected for the upcoming months. Otherwise, Happy Holidays!